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 Post subject: End Bonuses for Bankers
PostPosted: Wed Nov 09, 2011 9:27 pm 
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Joined: Fri Aug 07, 2009 7:44 am
Posts: 2857
Location: Fuquay Varina, NC
Occupation: The Gawd Of SAN And NAS
Mr. Taleb makes an excellent suggestion:

Instead, it’s time for a fundamental reform (Nassim Taleb, NYTimes): Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed should not get a bonus, ever. In fact, all pay at systemically important financial institutions — big banks, but also some insurance companies and even huge hedge funds — should be strictly regulated.

Critics like the Occupy Wall Street demonstrators decry the bonus system for its lack of fairness and its contribution to widening inequality. But the greater problem is that it provides an incentive to take risks. The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.


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